Frieda Inc. is considering a capital expansion project. The initial investment of undertaking this project is $105,500. This expansion project will last for five years. The net operating cash flows from the expansion project at the end of year 1, 2, 3, 4 and 5 are estimated to be $22,500, $25,800, $33,000, $45,936 and $58,500 respectively. Frieda has weighted average cost of capital equal to 24%.

What is the NPV of undertaking this expansion project? That is, what is the NPV if the weighted average cost of capital is used as the discount rate?

Question options:

-$15,183.60

-$13,882.85

$1,817.34

$1,445.94

Based on the NPV obtained above, shall Frieda undertake the expansion project?

Question options:

No, because NPV>0.

No, because NPV<0.

Yes, because NPV<0.

Yes, because NPV>0.

Based on the Profitability Index (PI) obtained above, shall Frieda undertake the expansion project?

Question options:

No, because PI <1.

No, because PI <0.

Yes, because PI >0.

Yes, because PI >1.

Based on IRR obtained above, shall Frieda undertake this project? Assuming the weighted average cost of capital is the appropriate discount rate for the capital budgeting problems considered.

Question options:

Yes, IRR > Weighted Average Cost of Capital.

No, IRR > Weighted Average Cost of Capital.

No, IRR < Weighted Average Cost of Capital.

Yes, IRR > 0.

What is the modified internal rate of return if Frieda undertakes this project. Assuming that the positive cash inflow from undertaking this project will be reinvested at the weighted average cost of capital.

Question options:

18.99%

20.55%

24%

19.17%